Stocks Overheated

June 20, 2023 • Estimated Reading Time: 5 minutes

Macro Markets

Powell Testimony

Powell will deliver two days of Congressional testimony on the central bank’s interest-rate policy. He will address the House Financial Services Committee Wednesday and the Senate Banking Committee Thursday. The Fed chose to keep rates unchanged last week but signaled that two more rate hikes may be needed, with Powell noting the inflation battle “has a long way to go.”

While he is expected to reiterate his position after the Fed’s recent decision, investors will look for any clues as to the future direction of interest rates. The latest dot plot indicates two more 25-basis point rate hikes in the coming months. Investors will be closely watching the testimony for any fresh clues on the timing of the rate increases. Should Powell strike a hawkish note, this could boost the dollar. Alternatively, if he is more downbeat and fails to provide fresh clues, this may weaken the dollar. It may also be worth keeping a close eye on speeches from Federal Reserve Bank of St. Louis President James Bullard and New York President John Williams on Tuesday which could offer additional insight ahead of Powell’s testimony.

Federal Reserve Chair Jerome Powell will have an opportunity this week to clarify what many found a confusing message on the path of interest rates, with the added task of assuring Democrats and Republicans the economy is on track. Powell will need to reassure Republicans the Fed is not backing down from its campaign to contain price pressures while pointing Democrats to the economy's resilience as officials prepare to raise rates further this year.

The economic calendar will also be relatively quiet, with investor attention on Thursday's initial jobless claims data continuing to build amid signs the labor market is softening. In contrast, initial looks at manufacturing and service sector activity from S&P Global out Friday will show how the US economy is rounding out the second quarter.

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